Pence decides to pay off federal unemployment loan

Gov. Mike Pence on Thursday morning announced that the state would use about $250 million from Indiana's surplus to finish paying back the federal government for a loan the state took out to pay unemployment benefits during the recession.

By paying off the loan by Nov. 10, the state's employers will save an estimated $327 million in Federal Unemployment Tax Act penalties next year, equating to $126 per employee.

Josh Richardson, the deputy director of unemployment insurance operations at the Indiana Department of Workforce Development, told IBJ last week that there hasn’t been “a single argument against” paying off the loan.

Officials expect to transfer money from the state unemployment fund next spring to restore the withdrawal from the state's $2 billion in cash reserves.

Businesses pay taxes into the unemployment fund, which has already repaid much of $2 billion in federal loans.

"Removing this tax penalty for employers frees up resources that can be invested in hiring new employees, growing existing companies, raising wages, and more, and I’m confident that by removing this financial impediment to hiring, Hoosiers will continue to see economic opportunity all across our state,” Pence said in a written statement Thursday morning.

In all, Indiana borrowed some $2 billion from the U.S. Department of Labor during the last economic downturn because the taxes that employers were paying into the unemployment fund weren’t enough to pay the benefits owed to out-of-work Hoosiers.

Many other states borrowed as well. But Indiana was one of the first to need the help and is one of the last to pay off the loans. As of Oct. 10, the state owed $253 million. In addition to Indiana, only California, Connecticut, Ohio and the Virgin Islands continue to have outstanding loans.

Federal officials have been recouping their money by imposing penalties on Indiana businesses. That started several years ago at $21 per employee. The amount has increased by $21 every year until the annual payments reached this year’s total of $105. Paying off the loans stops the penalties.